SNR Denton on Bad Faith & Summary Judgment in Iowa

Under the bad faith law in most jurisdictions, it is often possible to show that a bad faith claim fails as a matter of law. Even though some facts may be in dispute, the disputed facts are often immaterial to whether the insurer’s conduct met the requirements of the law or, if that conduct was arguably deficient in some way, whether the deficiencies had any causal relationship to the harm suffered by the insured. As a result, summary judgment and its procedural cousins (judgment as a matter of law at or after trial and appellate review of evidentiary sufficiency) are important tools in the arsenal of lawyers defending bad faith cases.

For many years, Iowa courts have been very open to summary judgment, saying whether there is a bona fide dispute barring bad faith can “almost always” be determined as a matter of law. But they have never stated a precise way of determining exactly when that can be done. A recent decision of the Iowa Supreme Court in Bellville v. Farm Bureau Mutual Insurance Co, 702 N.W.2d 468 (Iowa 2005),has clarified that subject. But the meaning of Bellville is itself contested, as shown by the recent federal decision in Zimmer v. Travelers Insurance Co., 521 F. Supp. 2d 910 (S.D. Iowa 2007). In this commentary, William T. Barker and Robert C. Johnson, partners in the Chicago office of SNR Denton, argue that Bellville and other Iowa cases support much readier availability of summary judgment than Zimmer recognizes.

The authors write that:

"For summary judgment purposes, … an insurer’s failure to pay benefits cannot give rise to a bad faith action, under the standards applicable to the first party bad faith tort, if the insured’s right to payment was fairly debatable or subject to a bona fide dispute (two formulations with the same meaning). Existence of grounds for a bona fide dispute is a reasonable basis or a proper cause (two more equivalent formulations) for delay or denial of benefits. So, showing existence of grounds for a bona fide dispute is ordinarily sufficient to preclude bad faith liability."

The issue, then, is how one shows that. Some courts have adopted a so-called "directed verdict rule," which states that if the insured is not entitled to a directed verdict on coverage, the insurer is entitled to a directed verdict on bad faith. But the Iowa Supreme Court has rejected that rule, and the authors conclude that Zimmer properly held that Bellville did not retreat from that rejection. Nonetheless, he explains that Zimmer failed to recognize the ways in which Zimmer clarified the bad faith standard so as to adopt a modified directed verdict rule, permitting summary judgment in cases where that was previously uncertain. In particular, Bellville held that:

A reasonable basis exists for denial of policy benefits if the insured's claim is fairly debatable either on a matter of fact or law. A claim is “fairly debatable” when it is open to dispute on any logical basis. Stated another way, if reasonable minds can differ on the coverage-determining facts or law, then the claim is fairly debatable.

The authors’ analysis of the authorities relied on in Bellville and the way the court used those authorities shows that the difference between the Bellville rule and the rejected “directed verdict rule” concerns cases where the jury can determine, “from additional evidence, that some of the evidence supposedly creating a factual issue on coverage was known by the insurer to be unworthy of consideration. An insurer cannot, in good faith, rely on evidence it knows or should know to be false or unreliable.” They confirm this conclusion by review of all other cases in which the Iowa courts have determined whether existence of a bona fide dispute and of a parallel line of cases, not previously relied upon on bad faith issues, but which employ exactly the same “bona fide dispute” standard. Accordingly, the authors conclude that “if there is any evidence that the insurer could, in good faith, rely upon and which would permit a reasonable factfinder to rule against the insured, then the issue is fairly debatable and there can be no bad faith.”